UC Berkeley Press Release

Minimum wage bill would boost wages of 2.35 million state workers, study says

By Kathleen Maclay, Media Relations | 30 August 2005

BERKELEY – Proposed legislation to raise California's minimum wage would boost the pay of 2.35 million workers in the state -- most of them Latino and many of them female -- with minimal costs to businesses and $2 billion in taxpayer savings, according to a new study by researchers at the University of California, Berkeley's Institute of Industrial Relations.

Assembly Bill 48 would increase the state's minimum wage from $6.75 an hour to $7.25 an hour, starting Jan.1, 2006, marking the first increase in four years. It would then increase the minimum wage in January 2007 to $7.75 per hour, and require annual adjustments for inflation beginning in 2008. The bill is authored by Assemblywoman Sally Lieber, D-Mountain View, who also is chair of the Joint Legislative Committee on Ending Poverty in California.

Some 1.65 million workers in California's private sector would immediately see their wages increase, and the researchers estimate another 700,000 workers would benefit from a "ripple effect."

The legislation is expected to be voted on before the Legislature ends its current session on Sept. 9. It is similar to legislation passed last year by the state Assembly and Senate, but vetoed by Gov. Arnold Schwarzenegger.

Institute Director Michael Reich, research economist Arindrajit Dube and graduate student researcher Gina Vickery note in their study that the minimum wage, when adjusted for inflation, has dropped by more than 30 percent since 1968 and is approaching historic lows when measured by that gauge. California's minimum wage, they said, is 32 percent of the average wage in the state and is the lowest of any state on the West Coast.

"This bill would go a long way toward helping the lowest-paid workers to recover the cost of increased gas prices in the past year," said Reich. "Helping the lowest-paid workers to improve their purchasing power and reduce their need for public assistance is both fair and makes economic sense. It would widen the basis for California's continuing recovery."

The UC Berkeley researchers calculate the higher state minimum wage would add approximately 0.7 percent to the operating costs of the average business for a total increase of $2.45 billion a year. About three-fourths of California's businesses would see operating cost increases of no more than 1 percent, according to the UC Berkeley study.

The restaurant industry would undergo the biggest increases of any business sector, said researchers, estimating hikes of about 2.7 percent in operating costs and prices. They also note that while California restaurants employ 6 percent of the total state workforce, restaurants account for one of every four low-wage workers.

They disagree with a March report by the Legislative Analyst's Office that warned increasing the minimum wage may spur businesses to raise prices, substitute mechanization for human labor, or even to leave the state. The analyst's findings are too general and are not based on a study of the Lieber bill, they said.

The UC Berkeley team said it looked specifically at AB 48 and used new survey data about company size, operating costs, labor turnover, workforce makeup and various industries to make a more thorough and current examination.

In addition, the study said that during the past two decades, increases in California's minimum wage have not led to job losses and that employment in the restaurant industry, the sector most affected by minimum pay hikes, has grown by 8.9 percent since the last minimum wage boost on Jan. 1, 2002.

The institute report concludes that the most likely business reaction to increasing the minimum wage would be to slightly increase prices, which they predict would go largely unnoticed by consumers.

Among those to benefit from increasing the minimum wage to $7.75 an hour would be taxpayers footing the bill for public assistance programs such as food stamps, child care assistance and Medi-Cal. Participation in such public assistance programs drops as wages go up, the researchers said.